Tuesday, April 17, 2007

The Turkey Trap

From, How To Make Money In Stocks, by William O'Neil.

A little boy was walking down the road when he came upon an old man trying to catch wild turkeys. The man had a turkey trap, a crude device consisting of a big box with the door hinged at the top. This door was kept open by a prop to which was tied a piece of twine leading back a hundred feet or more to the operator. A thin trail of corn scattered along a path lured turkeys to the box. Once inside, the turkeys found an even more plentiful supply of corn. When enough turkeys had wandered inside the box, the old man would jerk away the prop and let the door fall shut. Having once shut the door, he couldn't open it again without going up to the box and this would scare away any turkeys lurking outside. The time to pull away the prop was when as many turkeys were inside as one could reasonably expect.

One day he had a dozen turkeys in his box. Then one sauntered out, leaving 11. "Gosh, I wish I had pulled the string when all 12 were there," said the old man. "I'll wait a minute and maybe the other one will go back."

While he waited for the twelfth turkey to return, two more walked out on him. "I should have been satisfied with 11," the trapper said. "Just as soon as I get one more back, I'll pull the string."

Three more walked out, and still the man waited. Having once had 12 turkeys, he disliked going home with less than eight. He couldn't give up the idea that some of the original turkeys would return. When finally only one turkey was left in the trap, he said, "I'll wait until he walks out or another goes in, and then I'll quit." The solitary turkey went to join the others, and the man returned empty-handed.

The psychology of the normal investor is not much different. They hope more turkeys will return to the box when they should fear that all will walk out and they'll be left with nothing."

And so it was with me today. I was never having a stellar day, but at one point, I was up close to $400 with not many positions to take me lower. This was around 11:30 which would have been a perfect time to stop trading for awhile. What happened was that I started feeling pretty bearish and so I decided to get short some stock. I never took any big losses or anything, but I don't think I had one winning trade for the rest of the day.

I kept waiting to get back about $300, then $250, then $200 and so on until I lost it all and went negative. Nothing was happening for me today after 11:30. None of my stocks were moving. The mistake I made today was not recognizing this earlier.

As disappointed as I am that I lost my profits today, I'm happy that again I stuck to my rules. My best trade of the day was in TAM, which I bought as it broke it's 60 minute downtrend line.

Even with this loss, I'm regaining confidence and I'm going to start building my positions back up. Here are the stats:

P&L, -$25
Best, TAM
Worst, ITG -$97

stocks traded, 21, 7 positive, 14 negative
shares traded, 28,200
total trades, 210 (obvious churn for a day like today)

Virtual Office, $2807

Misstrade, $2670 on 8000 shares traded.
NYSE Scalper, $658 on 58,000 shares traded.
Evolution Trader, $52 on 41,400 shares traded.
Me, -$25 on 28,200 shares traded
One Bad-Ass Trader, -$36 on 3000 shares traded.
TradeWhileWorking, -$512 on 6700 shares traded.

A slow day for most in the VO although Misstrade kept to his winning ways and the Scalper had a nice bounce back from yesterday's loss.

I can't speak for the other traders, but today was excruciatingly dull as far as I'm concerned. I will detail this dullness later in full sparkling detail.

However, for now I must go as I have plans immediately after the close.

So far so slow

I feel like today is much like yesterday. Action in the first 30 minutes and since then, tight, rangebound trade.

Seems like all the sub-prime issues are slowly being forgotten as all of the mortgage type stocks are strong again.

I've had one decent trade in TAM but other than that, all is quiet. Volume is a little lighter than it was at this time yesterday on the NYSE. I think I'm going to walk away for awhile, happy with my small gains and try to find a couple of trades in the afternoon session.

Gonna sip on some green tea and finish Our Man In Havana.

See you this afternoon. For now, check out this Great Moment in Presidential Speeches segment, courtesy of David Letterman.